French Leaseback Opportunity At Chateau de la Cazine

Earn A Guaranteed 10% Per Year From The Chateau de la Cazine In France–Here’s How

The French chateau resort development that I told you about in December got news last week that its restaurant has been awarded its first Michelin Star. That just 18 months after opening. That is no small feat and bodes well for investors in the project.

The property is Chateau de la Cazine in Limousin, France, a chateau on 90 hectares that has been purchased by a UK developer and is being transformed from a modest hotel with an excellent restaurant to a full-fledged destination resort with a spa, a golf course, and that same excellent, now Michelin Star restaurant.

The heart of the property is a petit chateau whose foundation dates back to the 12th century. This picture-postcard-perfect historic structure is being renovated into the new resort’s luxury spa center and is expected to be an important draw.

However, the main event is the main chateau, imposing and grand, built in 1898 and every bit the picture of French chateau life. This building has been renovated already and is up and running as a boutique hotel with 18 deluxe rooms and the fine-dining restaurant.

In addition to the main chateau and the petit chateau, the property includes several other large stone outbuildings, many of which are currently being converted into a collection of rental apartments. This work is expected to be completed in the next 12 to 18 months.

Other of the outbuildings will also be renovated and some new structures will be built to create additional studio, one-bedroom, two-bedroom, and even three-bedroom apartments, all of which will be operated as rental units. In all, when the project is completely built out, the property will include about 140 rental units.

The investment opportunity falls under what’s referred to as the French Leaseback program, under which government incentives are given for the development of hotel accommodation. The two key benefits for the investor are:

Second, your purchase comes with a 15-year lease contract with the hotel management company, meaning 15 years of turn-key rental management and guaranteed yields. This, of course, is the primary benefit–the reliable annual return for the lifetime of the leaseback agreement.

The French government initiated these “leaseback” programs (which include benefits not only for the investor, but for the developer, too) more than 30 years ago to help incentivize investment in the development of additional inventory for this country’s short-term rental industry. As France is one of the most-visited countries in the world and has been for decades, the demand for short-term rentals and hotel rooms is tremendous and expanding. More than 80 million people visit France each year, and they all need places to sleep.

I’ve reported on French leaseback offers many times over the past, say, 15 years. Typical for these offers are guaranteed annual returns of 3% to 6%.

The return in this case can be 10%.

You have two options for how to invest in the Chateau Cazine Leaseback offer. The one-bedroom and studio apartments in the newest building can be bought either as complete units or as fractionals. Fractional units start at £9,500 for a 1/26th fraction (two weeks) and £18,500 for a 1/13th fraction of a one-bedroom unit. Studios are offered only as 1/13th fractions at £11,500. The return for a fractional investment is the straight, full 10% per year.

However, if you invest in a complete apartment, you will have some costs to cover, to do with furnishing and future room refurbishment (typically hotel rooms are refurbished every five to seven years). These amounts aren’t expected to be significant, but they will cut into your 10% yield. Realistically, I think that, in the cases where these costs apply, you’re looking at an annual net yield of 9%, still very good for a leaseback offer.

The full unit price is £130,000 for a studio and £200,000 for a one-bedroom.

Two-bedroom units are also available, in previously released buildings. In this case, full units are £330,000, and 1/13th fractions are available at £30,000.

Note that the pound sterling is up 2.5% against the U.S. dollar since I first wrote about this opportunity in December and is at a high for the last two years. If you’re investing with U.S. dollars, this means this investment is more expensive today than it would have been in December. However, timing investments to currency rates is difficult, and I don’t recommend you try. This investment provides decent currency diversification if all your assets are in your home currency otherwise (assuming your home currency isn’t the British pound).

Also note that, while your guaranteed return is tied to your initial investment in pounds (as is the 150% buyback), should you decide to keep the unit and participate in the 50/50 net room-revenue split after the guarantee period, your currency risk switches from the pound sterling to the euro, as the hotel operates in euro.

Given the level of returns and the standard of the project, this is the most interesting French leaseback program I’ve found in the 15 years I’ve been paying attention to and reporting on these opportunities.

The Chateau de la Cazine is an extraordinary property and is included in the Chateau and Hotel Collection. It has also won a 2013 Trip Advisor award for Excellence. This is one way that guests looking for a unique and interesting place to stay in France will find it. The chateau is being developed as a spa and golf resort, meaning those are two other ways potential guests will find it (when they search for spa or golf properties in France). This will also be an ideal venue for corporate events and weddings.

The local Limoges airport is served by Ryanair from London, Leeds, Liverpool, East Midlands, and Bristol in the UK, as well as a couple of low-cost French airlines. Low-cost airline access has opened up many real estate and tourist markets in Europe.

The developer owns the property outright and has no debt. Bundle that with the buyback option, the 15 years of guaranteed returns, and the fact that the hotel is already up and running and enjoying very good occupancy rates, and you’ve got an investment for which the overall risk is nicely mitigated.

Furthermore, you are not likely to find another leaseback property anywhere in France offering this level of return.

P.S. I almost forgot to detail for you what I think is one of the most interesting parts of this opportunity–the purchase terms that the developer is offering.

You have two payment options. You can pay in full, or you can make a 20% down payment and then pay the balance off over three years. If you pay in full up front, the developer will pay you 5% on your investment amount during the two-year construction period (some of the units in previously launched buildings will be completed sooner than two years). When construction is completed, you’ll receive the 10%-per-year returns that I referenced above for 15 years from the date of completion. Then, at the end of the 15 years, the developer guarantees to buy your unit back from you for 150% of what you paid for it.

It’s that simple. Of course, you don’t have to take the buyback at the end of 15 years if you don’t want to. If real estate values appreciate more than 3% on average over the 15-year term, you could decide to try to resell the unit on the open market rather than selling back to the developer…or you could not sell at all and continue to receive rental income on a 50/50 split basis with the resort.

Lief Simon has lived and worked on five continents and traveled to more than 60 countries. In his long career as a global property investor, Lief has also managed multimillion-dollar portfolios of rental properties, for others and for himself. He offers advice on international diversification in his twice-weekly Offshore Living Letter and monthly Simon Letter dispatches.